Align Technology (NASDAQ: ALGN), most notably the makers of Invisalign aligners specializes in orthodontic devices and restorative treatment has been through a whirlwind the past 2 years, with its stock price dropping 60% since its high in September 2021.
2024 has also seen its challenges, after the stock increased 20% its has worked its way back down to about even for the year. For long term investors, does today’s price create a nice entry into Align Technology stock?
2024 Performance YTD
Align Technology released its first quarter earnings in April, beating both analyst estimates on earnings per share, 8.39% beat and EPS of $2.14 and revenue, 2.56% beat on $997 million. The good news was net income up 14% year-over-year and the company repurchased 1.1 million shares at $230 and $150 million will likely be spent in the second quarter on more share buybacks.
Taking a Look Under the Hood
24/7 Wall Street scores stocks in three key areas: fundamentals, valuation and Wall Street expectations. The score compares stocks to peers in their industry coupled with price targets and Wall Street recommendations.
Fundamentals
| Revenue Growth (5 Year) | 14% | Fail |
| EPS Growth (5 Year) | 3.08% | Fail |
| 5 Year Gross Margins (Median) | 71.76% | Pass |
| ROE (5 Year Median) | 21.03% | Pass |
| Debt to Equity | 0% | Pass |
| Free Cash Flow Growth (5 Year Growth) | 13% | Pass |
| Long Term Debt | $0 | Pass |
| — | — | — |
Align Technology exhibits a strong fundamental profile despite slower revenue and earnings growth you would like to otherwise see. While the company’s revenue growth of 14.45% over the past five years is slower than its 10-year average of 19.32%, it still maintains a robust median gross margin of 71.76%, surpassing industry standards.
Similarly, although EPS growth stands at 3.08% over the past five years, lower than the 10-year average of 21.95%, Align Technology demonstrates a healthy return on equity (ROE) of 21.03%.
A nice feather in the cap for Align is $0 in long term debt which allows management to plow money back into the business or to take shareholder friendly measures, like share buybacks.
Wall Steet’s Take
Analysts on Wall Street are optimistic about Align Technology’s future prospects. With a price target of $337.61, representing a 26.52% premium over the current price of $266.84, analysts foresee significant upside potential for the stock.
Additionally. the consensus Wall Street recommendation stands at 2.19, indicating a favorable outlook among analysts. In fact, of the 14 analysts covering the stock, 9 have the stock as “Outperform” or “Buy”.
| Price Target | $337.61 | Pass |
| Consensus Recommendation | 2.19 | Pass |
Value Metrics
| Earnings Yield | 2.27% | Fail |
| Dividend Yield | — | — |
| Free Cash Flow Yield | 2.42% | Pass |
| EBITDA Margin | 20.69% | Pass |
| Return On Invested Capital (5 Year) | 21% | Pass |
In terms of value metrics, Align Technology presents a mixed performance. While the company’s free cash flow yield of 2.42% outperforms industry averages, its earnings yield fall short. The earnings yield of 2.27% and the absence of a dividend is the main factor here. However, Align Technology demonstrates a competitive EBITDA margin of 20.69% and a return on invested capital (ROIC) of 21.03%, both exceeding industry averages.
Overall, while there are areas for improvement, Align Technology’s strong fundamentals and positive outlook position it well for future growth and value creation.
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